|June 30, 2014|
Previously published on June 24, 2014
Decision: In Tiri v. Lucky Chances, Inc., the defendant-employer filed a motion to compel arbitration of its former employee’s wrongful discharge action. The parties had entered into a written arbitration agreement that contained an explicit agreement to delegate to the arbitrator any questions about the enforceability of the arbitration agreement, including claims that the agreement was void or voidable. The trial court denied the employer’s motion to compel, holding that the arbitration agreement as a whole was unconscionable and, therefore, unenforceable.
The California Court of Appeal reversed, holding that the trial court lacked the authority to rule on the enforceability of the arbitration agreement in light of the delegation clause. The court explained that any claim of unconscionability must be specific to the delegation clause, not the contract as a whole, and so the court must initially assess whether the delegation clause is enforceable.
In this case, the court first found the delegation clause was clear and unmistakable. It next considered whether the clause was unconscionable. It held that although the clause was a procedurally unconscionable contract of adhesion, it was not substantively unconscionable because there was no identified unfair term in the delegation clause itself. As a result, the arbitrator could determine the enforceability of the arbitration agreement.
Impact: The court’s decision reaffirms the federal policy of upholding delegation clauses in employment arbitration agreements when the delegation clause is: (1) clear and unmistakable and (ii) not itself unconscionable or otherwise invalid. Tiri highlights that parties to arbitration agreements can control the forum in which the enforceability of those agreements is adjudicated. While some employers may seek to delegate enforceability questions to arbitrators, others have concluded that the availability of meaningful judicial review is important and therefore have expressly elected to keep decisions regarding the enforceability of their arbitration agreements in court.